AveXis Sale: An $8.7 Billion Endorsement for Gene Therapy

Last Monday may have been validation day for replacement gene therapy—a promising biotechnology treatment for some diseases that substitutes healthy genes for diseased ones.

That day,
AveXis
(ticker: AVXS), a leader in the field, accepted an $8.7 billion, or $218 a share, takeover bid from
Novartis
(NVS). The offer was 88% above AveXis’s closing price in the previous trading session and more than double its $92 price last year, when we published a bullish Sept. 25 cover story headlined “Gene Therapy Is Nearing a Major Breakthrough.” Avexis traded Friday around $212.

The deal also looks bullish for
Regenxbio
(RGNX), which makes the viral delivery mechanism for AveXis’ marquee treatment for severe spinal muscular atrophy. This inherited condition, known as SMA 1, affects an estimated 250 to 300 babies in the U.S. annually and usually leads to death by age two.

Novartis is paying a high price, considering that the AveXis treatment, while showing very promising results in an early-stage clinical trial involving 15 babies, hasn’t yet been approved by the Food and Drug Administration.

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Even if approval is granted, there are questions about pricing, which could exceed $1 million per patient, as well as the competitive landscape, with
Biogen
(BIIB) already selling an SMA drug, Spinraza. However, that must be taken on a regular basis every four months after the initial doses, while the AveXis therapy requires only a single dose.

Bullish analysts have estimated AveXis’ revenue reaching around $1 billion annually by the early 2020s, assuming FDA approval of the SMA treatment. Novartis sees the deal as “significantly accretive” to core earnings per share in 2020.

Regenxbio stands to receive $100 million in payments from AveXis under an amended license agreement the companies signed this year. Regenxbio has 32 million shares outstanding, giving it a market value of $1 billion. Its shares, which were at $28 when our article ran, recently were quoted near $35.

Gbola Amusa, a Chardan analyst, has a Buy rating and Street-high $90 price target on the stock. “Regenxbio is the platform and AveXis is the product,” he tells Barron’s. Amusa, also a longtime bull on AveXis, predicted late last year that it would be acquired in 2018.

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In the clinical trial of the AveXis gene therapy, all 15 babies in the high-dose group were “event-free”—meaning they didn’t need a ventilator to breathe—at 20 months, compared with 8% among untreated children. SMA, once referred to as floppy baby syndrome, causes muscle degradation and ultimately death.

Regenxbio has licensed its viral vectors—which help deliver treatments precisely to targeted cells—to other companies, too, including
Audentes Therapeutics
(BOLD). In fact, one investor says, Regenxbio has “multiple shots on goal” from royalties from the AveXis gene therapy, other licensed viral vectors, plus its own gene-therapy treatments for wet macular degeneration (a leading cause of blindness among the elderly) and a rare and severe form of high cholesterol.

In essence, as our story noted, this makes the company the closest thing to a gene-therapy mutual fund.

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